WITH a majority of the U.S. crop planting concluded, the main focus has now shifted to growing conditions and plant progress, with the anticipation that 2014 will be a record production year.
There has been growing consensus that El Nino weather will be present this year, but it is not expected to significantly affect U.S. production.
Warming surface temperatures and light winds in the Pacific Ocean have scientists predicting a return of the weather system known as El Nino, according to the U.S. Grains Council (USGC).
Characterized by heavy rains in some parts of the world and drought in others, the extreme weather conditions El Nino typically delivers have a strong impact on grain market production and pricing, according to the group.
Historically, El Nino has led to dry conditions in Australia, India, Malaysia and Indonesia, while wet conditions tend to be seen in South America, Central America and parts of the U.S.
In extreme El Nino years, USGC said drought has ravaged Australian wheat and barley crops. Rainfall reached just 69% of the average in the 2006-07 season, a severe El Nino year, leading to a wheat harvest that was 45% below average.
In South America, however, USGC pointed out that heavy to moderate rainfall in the critical summer months has helped corn and soybean production in the past.
SLC Agricola, a large corn, soybean and cotton producer in Brazil, emphasized that El Nino years typically result in very good production in the southern parts of the country and produce few negative effects elsewhere.
El Nino has a minimal effect on grain production in the U.S. because the weather tends to affect the southern and western parts of the country more than the central grain production areas, USGC explained.
"Past experiences have taught us that El Nino years tend to be favorable for the Central U.S. corn and soybean growing areas," said Jay O'Neil, Kansas State University senior agricultural economist. "We can take solace in the belief that El Nino should not have a substantial negative impact on our crop production."
USGC said fear over the effects of El Nino has been working its way into commodity price predictions. U.S. investment managers have been expecting increased prices in all 16 major agricultural futures markets, according to U.S. Commodity Futures Trading Commission data.
The forecast for El Nino conditions can cause concerns over production and prices of grains, but the weather system does not always mean a lower supply and higher prices, USGC said.
"In less severe years, El Nino can have little to no impact on grain yields," the organization noted. "For example, Australia has seen shortages in only four of the last seven instances of El Nino, with the others having average or above-average yields. So, while El Nino is expected to have an effect on grain markets this season, only time will tell what the impact will be."
Ryan Martin, a meteorologist at Allendale Inc., recently explained why he isn't jumping on the El Nino bandwagon this year.
Using the latest sea surface temperature anomaly, Martin pointed out that there is warming in the typical El Nino warming zone of the Pacific Ocean, but he also showed that there is deep cooling in the northwestern portion by Japan (Map). Martin said this would be cooler than normal if strong El Nino conditions were present.
Additionally, Martin said if the water gets too warm in a key area just to the northeast of Australia and back into the Indonesian waters, it will limit or kill El Nino. From January to May, Martin showed that there had been definite warming of waters in that region and said this could work against El Nino. He added that if El Nino does occur, it will be weak to mild.
"Either way, it doesn't have serious ramifications for our crop year," Martin said.
To have serious ramifications for U.S. crop production, he said El Nino conditions would have to be good and strong, and he's is not seeing that. In fact, Martin said he's seeing signs of ideal weather for crop production and above-trend yields at this time.
The latest sea surface temperature anomaly shows that warming waters north of Australia could mean El Nino will be present, but cooler waters by Japan may hinder those weather conditions. Source: National Oceanic & Atmospheric Administration.
For the week ending June 1, the U.S. Department of Agriculture reported that 95% of the nation's corn acres were planted. This was ahead of both last year's progress and the five-year average.
Corn plants were reported to be 80% emerged, with 52% rated in good condition and 11% rated excellent.
Weather has definitely been on the farmer's side over the past couple of weeks, allowing U.S. farmers to achieve significant progress in soybean acreage.
USDA reported that 78% of soybeans have been planted, which is 8% higher than the five-year average and compares to only 55% planted at this time last year.
Additionally, the report showed that 50% of soybean plants have emerged.
Both corn and soybean markets struggled last week as the absence of news and good weather resulted in a dull environment.
As the week unfolded, it became apparent that traders were no longer prioritizing old-crop news but were instead focusing on the new crop.
Arlan Suderman, senior market analyst for Water Street Solutions, called the wheat and corn markets "very oversold."
"We're going to be running out of sellers," he explained, but added that profit-taking usually precedes the monthly USDA "World Agricultural Supply & Demand Estimates" report, the next issue of which is scheduled to be released on June 11.
Last week, money continued to flow not only out of the commodity markets but also out of the equity sector, Suderman said. Increasing nervousness about the health of the economy was to blame.
Suderman explained that the Ukraine political crisis caused money to flow into commodities earlier this year over concerns that trade disruptions could result, but the world became mostly comfortable that the crisis was not going to disrupt trade.
Because of this, he said money has been getting pulled out of the commodity complex, which was also contributing to the bearish tone of the markets.
Suderman suggested that there will be a price jump sometime in June but said the market will determine just what news will cause that jump.
For the most part, though, Suderman said traders are pretty much fixed on the possibility of record yields.
Nearby corn prices settled at $4.655/bu. last Monday but continued a downward trend through the week to close at $4.49/bu. on Thursday.
Soybean prices lost significant ground last week, which clearly revealed the change in the trade's priorities.
July contracts closed higher last Monday at $15.005/bu., but Tuesday's market activity started the losing trend for old-crop soybeans, with nearby prices settling at $14.8125/bu. The market recovered modestly on Wednesday but took another old-crop price plunge Thursday to settle at $14.605/bu.
Old-crop soybean export sales were minimal over the last couple of weeks, but total commitments were already 3% above USDA's forecast for the marketing year, which Bryce Knorr, senior editor of Farm Futures, said still has three months to run.
The ongoing tight old-crop supply, however, wasn't enough to support prices.